Anti-Money Laundering and Countering the Financing of Terrorism Code 2015 1 ANTI-MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM CODE 2015 Index Paragraph Page PART 1 INTRODUCTORY 3 1 Title... 3 2 Commencement... 3 3 Interpretation... 3 PART 2 GENERAL REQUIREMENTS 13 4 General requirements... 13 5 Specified non-profit organisations... 14 PART 3 RISK ASSESSMENT AND ONGOING MONITORING 14 6 Business risk assessment... 14 7 Customer risk assessment... 15 8 Technological developments risk assessment... 15 9 Ongoing monitoring... 16 PART 4 CUSTOMER DUE DILIGENCE 17 10 New business relationships... 17 11 Continuing business relationships... 18 12 Occasional transactions... 19 13 Beneficial ownership and control... 19 14 Politically exposed persons... 21 15 Enhanced customer due diligence... 21 1 Please note that this piece of secondary legislation has not yet been updated to take account of the creation of the Financial Intelligence Unit as a result of the FIU Act 2016. Where in this Code it states Financial Crime Unit this should be read as Financial Intelligence Unit and references to a constable serving in the Financial Crime Unit should read Financial Intelligence Unit. 1
PART 5 SPECIFIED NON-PROFIT ORGANISATIONS 23 16 Application... 23 17 New business relationships of specified non-profit organisations... 23 18 Continuing business relationships of specified non-profit organisations... 23 19 Occasional transactions of specified non-profit organisations... 24 PART 6 SIMPLIFIED CUSTOMER DUE DILIGENCE 25 20 Acceptable applicants... 25 21 Persons in a regulated sector acting on behalf of a third party... 25 22 Generic designated business... 28 23 Eligible introducers... 28 24 Miscellaneous... 31 PART 7 REPORTING AND DISCLOSURES 34 25 Money Laundering Reporting Officer... 34 26 Reporting procedures... 34 27 Internal disclsoures... 35 28 External disclosures... 35 PART 8 COMPLIANCE 36 29 Monitoring and testing compliance... 36 30 New staff appointments... 36 31 Staff training... 36 32 Record keeping... 37 33 Record retention... 37 34 Record format and retrieval... 38 35 Registers of internal and external disclosures... 38 36 Register of money laundering and financing of terrorism enquiries... 39 PART 9 COMPLIANCE 39 37 Foreign branches and subsidiaries... 39 38 Shell banks... 39 40 Fictitious, anonymous and numbers accounts... 40 PART 10 OFFENCES AND REVOCATIONS 41 41 Offences... 41 42 Revocations... 42 2
Statutory Document No. 2015/0102 Proceeds of Crime Act 2008, Terrorism and Other Crime (Financial Restrictions) Act 2014 ANTI-MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM CODE 2015 Laid before Tynwald: 17 March 2015 Coming into Operation: 1 April 2015 The Department of Home Affairs makes the following Code under section 157 of the Proceeds of Crime Act 2008 2 and section 68 of the Terrorism and Other Crime (Financial Restrictions) Act 2014 3 after consulting such persons and bodies that appeared to it to be appropriate 4. 1 Title PART 1 INTRODUCTORY This Code is the Anti-Money Laundering and Countering the Financing of Terrorism Code 2015. 2 Commencement This Code comes into operation on 1 April 2015. 3 Interpretation (1) In this Code acceptable applicant means a customer that satisfies the conditions of paragraph 20; AML/CFT means anti-money laundering and countering the financing of terrorism; 2 AT 13 of 2008 3 AT 13 of 2014 4 As required by section 157(4) of the Proceeds of Crime Act 2008 and section 68(4) of the Terrorism and Other Crime (Financial Restrictions) Act 2014 3
AML/CFT requirements means the requirements of the following enactments section 9 of the Prevention of Terrorism Act 1990 5 ; sections 7 to 11 and section 14 of the Anti-Terrorism and Crime Act 2003 6 ; part 3 of the Proceeds of Crime Act 2008; (e) parts 2, 3 and 4 of the Terrorism and Other Crime (Financial Restrictions) Act 2014; this Code, and includes, in the case of anything done otherwise than in the Island, anything that would constitute a requirement under the enactments specified in to if done in the Island; beneficial owner means the natural person who ultimately owns or controls the customer or on whose behalf a transaction or activity is being conducted and includes but is not restricted to in the case of a legal person other than a company whose securities are listed on a recognised stock exchange, a natural person who ultimately owns or controls (whether through direct or indirect ownership or control, including through bearer share holdings) 25% or more of the shares or voting rights in the legal person; in the case of any legal person, a natural person who otherwise exercises ultimate effective control over the management of the legal person; in the case of a legal arrangement, the trustee or other person who exercises ultimate effective control over the legal arrangement; and in the case of a foundation, a natural person who otherwise exercises ultimate effective control over the foundation; business in the regulated sector has the meaning assigned by paragraph 1 of Schedule 4 to the Proceeds of Crime Act 2008, except that paragraph 1(o) (online gambling) of that Schedule is excluded; business relationship means an arrangement between two or more persons where 5 Although this Act has been repealed it is possible for proceedings to be taken in respect of acts that took place when it was in force 6 AT 6 of 2003 4
at least one of those persons is acting in the course of a business; the purpose of the arrangement is to facilitate the carrying on of business in the regulated sector between the persons concerned on a frequent, habitual or regular basis; and the total amount of any payments to be made by any person to any other person in the course of that arrangement may neither be known nor be capable of being ascertained at the time the arrangement is made; collective investment scheme has the meaning given in section 1 of the Collective Investment Schemes Act 2008 7 ; competent authority means all Isle of Man administrative and law enforcement authorities concerned with AML/CFT, including in particular the Financial Supervision Commission, the Insurance and Pensions Authority, the Isle of Man Gambling Supervision Commission, the Department of Home Affairs, the Financial Intelligence Unit, the Office of Fair Trading, the Attorney General, and the Customs and Excise and Income Tax Divisions of the Treasury; constable includes any officer appointed under section 1(2) of the Customs and Excise Management Act 1986 8 ; correspondent services means banking, money or value transfer services and other similar relationships provided by a financial institution in one jurisdiction ( the correspondent institution ) to a financial institution in another jurisdiction ( the respondent institution ); currency for the purposes of this Code includes virtual currencies; customer of a relevant person other than a relevant person that is a specified non-profit organisation, means a person (i) (ii) seeking to form a business relationship or carry out an occasional transaction; or carrying on a business relationship or carrying out an occasional transaction, 7 AT 7 of 2008 8 AT 34 of 1986 5
with a relevant person who is carrying on business in the regulated sector in or from the Island and includes a person introduced to the relevant person within the meaning of paragraph 23; and of a specified non-profit organisation, means the persons, or groups of persons, who receive benefit (either directly or indirectly) for charitable, religious, cultural, educational, political, social or fraternal purposes. For the purposes of paragraphs 17 and 18, a customer is considered to be establishing a business relationship; customer due diligence (except in the expression enhanced customer due diligence ) means the measures specified in paragraphs 9 to 14, 17 to 24, 37 and 39 of this Code; designated non-financial businesses and professions or designated businesses means relevant persons that are subject to oversight for compliance with the AML/CFT requirements by the Insurance and Pensions Authority, the Isle of Man Gambling Supervision Commission, or the Financial Supervision Commission or one of its delegates, apart from regulated persons; director and officer include for a limited liability company constituted under the Limited Liability Companies Act 1996 9, a member, manager or registered agent of such a company; for a limited partnership with legal personality in accordance with sections 48B to 48D of the Partnership Act 1909 10 (i) (ii) (iii) if a general partner is a natural person, that person; if a general partner is a body corporate, the directors and officers of that body corporate; if a general partner is a foundation, the council members (or equivalent) of that foundation; and for a foundation, a member of the council (or equivalent) of the foundation; document includes information recorded in any form and, in relation to information recorded otherwise than in legible form, references to its production include references to produce a copy of the information in legible form; 9 AT 19 of 1996 10 AT 3 of 1909 6
donor in respect of a specified non-profit organisation means any person who provides funds to that specified non-profit organisation. For the purposes of paragraph 19, a donor is considered to be undertaking an occasional transaction; eligible introducer means an introducer that satisfies the conditions of paragraph 23; employee and worker of a relevant person have the same meanings as in section 173 of the Employment Act 2006 11 and include an individual who works under a contract of employment or any other contract of service for the relevant person; practises alone or with others under the terms of a partnership agreement for the relevant person; is otherwise engaged within the business of a relevant person, in all cases where the individual undertakes to do or perform, directly or indirectly, any work or service for a relevant person, whether or not engaged directly by the relevant person or through another entity forming part of the group of entities of which the relevant person is a part, and the relevant person is not by virtue of the contract a customer of the individual; or is a director or officer of the relevant person; enhanced customer due diligence means steps, additional to the measures specified in paragraphs 9 to 14, 17 to 24, 37 and 39, for the purpose of identifying customers and other persons, namely considering whether additional identification information needs to be obtained; considering whether additional aspects of the identity of the customer need to be verified; the taking of reasonable measures to establish the source of the wealth of the customer and any beneficial owner; and considering what on-going monitoring should be carried on in accordance with paragraph 9; evidence of identity means evidence of a person s identity obtained in accordance with the procedures specified in paragraphs 10(1), 12(1), 17(1) or 19(1) (as applicable); 11 AT 21 of 2006 7
exempted occasional transaction means an occasional transaction (whether a single transaction or a series of linked transactions) where the amount of the transaction or, as the case may be, the aggregate in the case of a series of linked transactions, is less in value than 3,000 in the case of a transaction entered into in the course of business referred to in paragraph 1(l) (casinos) or 1(n) (bookmakers) of Schedule 4 to the Proceeds of Crime Act 2008; or 5,000 in the case of a transaction entered into in the course of business referred to in paragraph 1(x) (bureau de change) or 1(z) (cheque encashment only) of Schedule 4 to the Proceeds of Crime Act 2008; or 1,000 in the case of a transaction entered into in the course of business referred to in paragraph 1(z) (money transmission services apart from cheque encashment) or 1(mm) (virtual currency) of Schedule 4 to the Proceeds of Crime Act 2008; or 15,000 in any other case; external disclosure means a report made under paragraphs 26(1)(f) and 28; external regulated business means business outside the Island that is regulated or supervised for AML/CFT purposes by an authority (whether a governmental or professional body and whether in the Island or elsewhere) empowered (whether by law or by the rules of the body) to regulate or supervise such business for such purposes; FATF Recommendations means the 40 Recommendations set out in the Financial Action Task Force ( FATF ) document International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, adopted by the FATF in February 2012; financing of terrorism includes the financing of proliferation and is to be construed in accordance with the definitions of financing, terrorism and proliferation in section 3 of the Terrorism and Other Crime (Financial Restrictions) Act 2014; foundation means a foundation established under the Foundations Act 2011 12 or a foundation or similar entity established under the law of another jurisdiction; information includes data; 12 AT 17 of 2011 8
insurer means a person authorised to carry on insurance business under section 8 of the Insurance Act 2008 13 or to whom a permit is issued under section 22 of that Act; internal disclosure means a report made under paragraphs 26(1) and 27; introducer has the meaning given in paragraph 23(1); legal arrangement means an express trust; or any other arrangement that has a similar legal effect (such as a fiducie, Treuhand or fideicomiso); legal person includes any body corporate or unincorporate capable of establishing a customer relationship with a financial institution or of owning property; List A is a list maintained by the Department of Home Affairs on its website specifying jurisdictions regarding which the FATF (or a FATF-style regional body) has made a call on its members and other jurisdictions to apply countermeasures to protect the international financial system from the ongoing and substantial risks of ML/FT emanating from the jurisdiction; List B is a list maintained by the Department of Home Affairs on its website specifying jurisdictions with strategic AML/CFT deficiencies or those considered to pose a higher risk of ML/FT; List C is a list maintained by the Department of Home Affairs on its website specifying jurisdictions which are considered to operate laws equivalent to those of the Isle of Man; ML/FT means money laundering and financing of terrorism, or both, and includes attempted transactions in relation to ML/FT; Money Laundering Reporting Officer or MLRO means an individual appointed under paragraph 25 and includes a deputy MLRO appointed under paragraph 25(3); money laundering means an act that falls within section 158(11) of the Proceeds of Crime Act 2008; nominee company means a wholly owned subsidiary that complies with paragraphs 2.7 or 3.1 of Schedule 1 to the Financial Services (Exemptions) Regulations 2011 14 or similar legislation in a jurisdiction in List C; 13 AT 16 of 2008 14 SD 0885/11 as amended by SD 0374/13 9
occasional transaction means any transaction (whether a single transaction or series of linked transactions) other than a transaction carried out in the course of an established business relationship formed by a relevant person and, for the purposes of this definition, a business relationship is an established business relationship if it is formed by a relevant person where that person has obtained, or is required to obtain, under procedures established, maintained and operated in accordance with this Code, satisfactory evidence of identity of the person who, in relation to the formation of that business relationship, was the customer; payable-through account means an account maintained by a correspondent institution that may be operated directly by a customer of the respondent institution; person includes any body of persons, corporate or unincorporate; politically exposed person or PEP means any of the following a natural person who is or has been entrusted with prominent public functions, including (i) a head of state, head of government, minister or deputy or assistant minister; (ii) a senior government official; (iii) a member of parliament; (iv) a senior politician; (v) an important political party official; (vi) a senior judicial official; (vii) a member of a court of auditors or the board of a central bank; (viii) an ambassador, chargé d affaires or other high-ranking officer in a diplomatic service; (ix) a high-ranking officer in an armed force; (x) a senior member of an administrative, management or supervisory body of a state-owned enterprise; (xi) a senior member of management of, or a member of, the governing body of an international entity or organisation; or (xii) an honorary consul; any of the following family members of a natural person in (i) a spouse; (ii) a partner considered by national law as equivalent to a spouse; (iii) a child or the spouse or partner of a child; (iv) a brother or sister (including a half-brother or half-sister); (v) a parent; (vi) a parent-in-law; (vii) a grandparent; or (viii) a grandchild; 10
any close associate of a natural person in, including (i) (ii) (iii) any natural person known to be a joint beneficial owner of a legal entity or legal arrangement, or any other close business relationship, with such a person; any natural person who is the sole beneficial owner of a legal entity or legal arrangement known to have been set up for the benefit of such a person; any natural person known to be beneficiary of a legal arrangement of which such a person is a beneficial owner or beneficiary; or (iv) any natural person known to be in a position to conduct substantial financial transactions on behalf of such a person; and for the purposes of this definition domestic PEP means a natural person in who is or has been entrusted with prominent public functions in the Isle of Man and any family members or close associates of that person in or, regardless of the location of those family members or close associates; and foreign PEP means a natural person in who is or has been entrusted with prominent public functions outside the Isle of Man and any family members or close associates of that person in or, regardless of the location of those family members or close associates; regulated person means any person holding a financial services licence issued under section 7 of the Financial Services Act 2008 15 ; any person authorised under section 8 the Insurance Act 2008; any person registered under section 25 of the Insurance Act 2008; (e) a retirement benefits schemes administrator registered under section 36 of the Retirement Benefits Schemes Act 2000 16 ; or a person holding an online gambling licence issued under section 4 of the Online Gambling Regulation Act 2001 17 ; relevant person means a person carrying on a business in the regulated sector; 15 AT 8 of 2008 16 AT 14 of 2000 17 AT 10 of 2001 11
senior management means the directors or key persons who are nominated to ensure that the relevant person is effectively controlled on a day-to-day basis and who have responsibility for overseeing the relevant person s proper conduct; shell bank means a bank that is incorporated in a jurisdiction in which it has no physical presence; and not affiliated with a financial services group that is subject to effective consolidated supervision; and for the purposes of this definition consolidated supervision, in relation to a financial services group, means supervision of the group by a regulatory body on the basis of the totality of its business, wherever conducted; financial services group means a group of companies whose activities include to a significant extent activities that are, or if carried on in the Island would be, regulated activities under the Financial Services Act 2008; and physical presence means the presence of staff and management based in the jurisdiction who operate at a level at which they are able to make meaningful decisions in respect of the functions and activities of the bank; specified non-profit organisation means a relevant person carrying on the business of a specified non-profit organisation within the meaning assigned by paragraph 1(6) of Schedule 4 to the Proceeds of Crime Act 2008; suspicious activity means any activity or information received in the course of a business relationship, occasional transaction or attempted transaction that causes the relevant person to know or suspect; or have reasonable grounds for knowing or suspecting, that the activity or information is related to money laundering or the financing of terrorism; trusted person means a regulated person; 12
(e) a nominee company of a regulated person where the regulated person is responsible for the nominee company s compliance with the AML/CFT requirements; an advocate within the meaning of the Advocates Act 1976 18, a registered legal practitioner within the meaning of the Legal Practitioners Registration Act 1986 19 or an accountant carrying on business in or from the Isle of Man, if the relevant person is satisfied that the rules of the professional body of the advocate, legal practitioner or accountant embody requirements and procedures that are at least equivalent to this Code; a person who acts in the course of external regulated business and is regulated under the law of a jurisdiction in List C, unless the relevant person has reason to believe that the jurisdiction in question does not apply, or insufficiently applies, the FATF Recommendations in respect of the business of that person; or a nominee company of a person who acts in the course of external regulated business and is regulated under the law of a jurisdiction included in List C where the person is responsible for the nominee company s compliance with the AML/CFT requirements, unless the relevant person has reason to believe that the jurisdiction in question does not apply, or insufficiently applies, the FATF Recommendations in respect of the business of that person; unusual activity means any activity or information received in the course of a business relationship, occasional transaction or attempted transaction where there are transactions that have no apparent economic or lawful purpose, examples of which include transactions that are (i) (ii) (iii) complex; both large and unusual; or of an unusual pattern; the relevant person becomes aware of anything that causes the relevant person to doubt the identity of a person it is obliged to identify under this Code; the relevant person becomes aware of anything that causes the relevant person to doubt the good faith of a customer, beneficial owner, beneficiary or introducer. 18 AT 27 of 1976 19 AT 15 of 1986 13
virtual currency means convertible virtual currencies such as cryptocurrencies or similar concepts where the concept is accepted by persons as a means of payment for goods or services, a unit of account, a store of value or a commodity; virtual currency business means the business of issuing, transmitting, transferring, providing safe custody or storage of, administering, managing, lending, buying, selling, exchanging or otherwise trading or intermediating virtual currencies. (2) In this Code, a reference to an amount of currency expressed in Euros is to be construed as also meaning that amount converted into, and expressed as, an amount of any other currency. (3) In this Code, in any case where a financial product (such as a life assurance policy) has been transferred by its holder (the assignor) to another person (the assignee), references in any provision to requirements in relation to a customer should be construed as including a reference to an assignee. 4 General requirements PART 2 GENERAL REQUIREMENTS (1) In conducting business in the regulated sector a relevant person must not enter into or carry on a business relationship or carry out an occasional transaction with or for another person unless the relevant person establishes, maintains and operates (i) risk assessment and ongoing monitoring procedures in accordance with Part 3; (ii) customer due diligence procedures in accordance with parts 4, 5 and 6 and paragraphs 37 and 39; (iii) reporting and disclosure procedures in accordance with Part 7; (iv) compliance procedures in accordance with Part 8; (v) procedures in accordance with Part 9; and (vi) internal controls and communication procedures that are appropriate for the purposes of forestalling and preventing ML/FT; takes appropriate measures for the purpose of making employees and workers aware of (i) (ii) the AML/CFT requirements; and the procedures established, maintained and operated under ; monitors and tests compliance in accordance with paragraph 29; 14
provides education and training in accordance with paragraph 31; and (e) complies with paragraphs 38 and 40. (2) The procedures and controls referred to in sub-paragraph (1) must be approved by the senior management of the relevant person. (3) The customer due diligence procedures referred to in sub-paragraph (1)(ii) must enable the relevant person to manage and mitigate the risks of ML/FT that have been identified by the risk assessments and ongoing monitoring carried out in accordance with Part 3. (4) A relevant person must carry out customer due diligence in accordance with parts 4 to 6 on the basis of materiality and risk of ML/FT; in accordance with the risk assessments and ongoing monitoring carried out under Part 3; and having particular regard to whether a customer poses a higher risk of ML/FT. 5 Specified non-profit organisations Despite paragraph 4, paragraphs 10 to 12 and 13(5) do not apply to specified non-profit organisations. PART 3 RISK ASSESSMENT AND ONGOING MONITORING 6 Business risk assessment (1) A relevant person must carry out an assessment (a business risk assessment ) that estimates the risk of ML/FT on the part of the relevant person s business and customers. (2) The business risk assessment must be undertaken as soon as reasonably practicable after the relevant person commences business; regularly reviewed and, if appropriate, amended so as to keep it upto-date; and documented in order to be able to demonstrate its basis. 15
(3) The business risk assessment must have regard to all relevant risk factors including (e) the nature, scale and complexity of the relevant person s activities; the products and services provided by the relevant person; the persons to whom and the manner in which the products and services are provided; reliance on third parties for elements of the customer due diligence process; and technological developments. 7 Customer risk assessment (1) A relevant person must carry out an assessment (a customer risk assessment ) that estimates the risk of ML/FT posed by a customer. (2) The customer risk assessment must be undertaken prior to the establishment of a business relationship or the carrying out of an occasional transaction with or for that customer; regularly reviewed and, if appropriate, amended so as to keep it upto-date; and documented in order to be able to demonstrate its basis. (3) The customer risk assessment must have regard to all relevant risk factors, including the business risk assessment carried out under paragraph 6; the nature, scale, complexity and location of the customer s activities; the persons to whom and the manner in which the products and services are provided; and reliance on third parties for elements of the customer due diligence process. 8 Technological developments risk assessment (1) A relevant person must carry out an assessment (a technological developments risk assessment ) that estimates the risk of ML/FT posed by any technological developments to the relevant person s business. 16
(2) The technological developments risk assessment must be undertaken prior to the launch or implementation of new products, new business practices and delivery methods including new delivery systems; undertaken prior to the use of developing technologies for both new and pre-existing products; and documented in order to be able to demonstrate its basis. (3) The technological developments risk assessment must have regard to all relevant factors including the business risk assessment carried out under paragraph 6; digital information and document storage; electronic verification of documents; and data and transaction screening systems. 9 Ongoing monitoring (1) A relevant person must perform ongoing and effective monitoring of any business relationship, including review of information held for the purpose of customer due diligence to ensure that it is up-to-date and appropriate (in particular where the relationship poses a higher risk of ML/FT); appropriate scrutiny of transactions and other activities, paying particular attention to suspicious and unusual activity; and appropriate scrutiny of transactions to ensure that they are consistent with (i) the relevant person s knowledge of the customer, the relevant person s business and risk profile and, if necessary, the source of funds for the transaction; (ii) the business risk assessment carried out under paragraph 6; (iii) the customer risk assessment carried out under paragraph 7; and (iv) any relevant technological developments risk assessment carried out under paragraph 8. (2) The extent and frequency of any monitoring under this paragraph must be determined 17
on the basis of materiality and risk of ML/FT; in accordance with the risk assessments carried out under this Part; and having particular regard to whether a customer poses a higher risk of ML/FT. PART 4 CUSTOMER DUE DILIGENCE 10 New business relationships (1) A relevant person must, in relation to each new business relationship, establish, maintain and operate the procedures specified in sub-paragraph (3), which procedures must comply with the requirements of this paragraph. (2) The procedures must be undertaken before a business relationship is entered into; or during the formation of that relationship. (3) The procedures referred to in sub-paragraph (1) are (e) the identification of the customer; the verification of the identity of the customer using reliable, independent source documents; the verification of the legal status of the customer using relevant information obtained from a reliable, independent source; the obtaining of information on the nature and intended purpose of the business relationship; and the taking of reasonable measures to establish the source of funds. (4) In exceptional circumstances the verification of the identity of the customer in accordance with sub-paragraph (3) may be undertaken following the establishment of the business relationship if it occurs as soon as reasonably practicable; it is essential not to interrupt the normal course of business; the customer has not been identified as posing a higher risk of ML/FT and the risks of ML/FT are effectively managed; 18
(e) (f) the relevant person has not identified any suspicious activity; the relevant person s senior management has approved the establishment of the business relationship and any subsequent activity until sub-paragraph (3) has been complied with; and the relevant person ensures that the amount, type and number of transactions is appropriately limited and monitored. (5) Except as provided in sub-paragraph (4) and Part 6, procedures comply with this paragraph if they require, when satisfactory evidence of identity in accordance with sub-paragraph (1) is not obtained or produced the business relationship to proceed no further; and the relevant person to terminate the business relationship and consider making an internal disclosure in accordance with paragraphs 26 and 27. 11 Continuing business relationships (1) A relevant person must, in relation to each continuing business relationship, establish, maintain and operate the procedures specified in sub-paragraph (3), which procedures must comply with the requirements of this paragraph. (2) The procedures must be undertaken during a business relationship as soon as reasonably practicable. (3) The procedures referred to in sub-paragraph (1) are an examination of the background and purpose of the business relationship; if no evidence of identity was produced after the business relationship was established, the taking of such measures as will require the production of such information in accordance with paragraph 10(1); if evidence of identity was produced in accordance with paragraph 10(1), the taking of such measures as will determine whether the evidence of identity produced under that paragraph is satisfactory; and if evidence of identity produced in accordance with paragraph 10(1) is not for any reason satisfactory, the taking of such measures as will require the production by the customer of evidence of identity or the taking of such measures as will produce evidence of identity in accordance with paragraph 10(1). 19
(4) The relevant person must keep written records of any examination, steps, measures or determination made or taken under sub-paragraph (1) (which records shall be records to which paragraph 32 applies); and must, on request, make such findings available to the competent authorities and auditors (if any). (5) Except as provided in Part 6, procedures comply with this paragraph if they require, when satisfactory evidence of identity, in accordance with paragraph 10(1), is not obtained or produced the business relationship to proceed no further; and the relevant person to consider terminating the business relationship and consider making an internal disclosure in accordance with paragraphs 26 and 27. 12 Occasional transactions (1) A relevant person must, in relation to an occasional transaction, establish, maintain and operate the procedures specified in sub-paragraph (3), which procedures must comply with the requirements of this paragraph. (2) The procedures must be undertaken before the occasional transaction is entered into. (3) The procedures referred to in sub-paragraph (1) are (e) the identification of the customer; the verification of the identity of the customer using reliable, independent source documents; the verification of the legal status of the customer using relevant information obtained from a reliable, independent source; the obtaining of information on the nature and intended purpose of the occasional transaction; and the taking of reasonable measures to establish the source of funds. (4) Except as provided in paragraph 12(5) and Part 6, procedures comply with this paragraph if they require, when satisfactory evidence of identity in accordance with sub-paragraph (1) is not obtained or produced the occasional transaction not to be carried out; and 20
the relevant person to consider making an internal disclosure in accordance with paragraphs 26 and 27. (5) Sub paragraph (1) does not require verification of identity in accordance with paragraph 12(3) to be produced if the transaction is an exempted occasional transaction. 13 Beneficial ownership and control (1) This paragraph applies when a relevant person is operating the procedures required by paragraph 9 and parts 4, 5 and 6 (as applicable). (2) A relevant person must, in the case of any customer where that customer is not a natural person, identify who is the beneficial owner of the customer; take reasonable measures to verify the identity of any beneficial owner of the customer, using relevant information obtained from a reliable, independent source; and subject to paragraphs 21 and 24, determine whether the customer is acting on behalf of another person and, if so, identify that other person, and take reasonable measures to verify that other person s identity using relevant information obtained from a reliable, independent source. (3) Without limiting sub-paragraph (2), the relevant person must, in the case of a customer that is a legal person or legal arrangement verify that any person purporting to act on behalf of the customer is authorised to do so; identify that person and take reasonable measures to verify the identity of that person using reliable, independent source documents; in the case of a legal arrangement, identify (i) (ii) (iii) the trustees or any other controlling party; any known beneficiaries; and the settlor or other person by whom the legal arrangement is made or on whose instructions the legal arrangement is formed; in the case of a foundation, identify (i) (ii) (iii) the council members (or equivalent); any known beneficiaries; and the founder and any other dedicator; 21
(e) (f) (g) obtain information concerning the names and addresses of any other natural persons having power to direct the customer s activities and take reasonable measures to verify that information; obtain information concerning the person by whom, and the method by which, binding obligations may be imposed on the customer; and obtain information to understand the ownership and control structure of the customer. (4) Without limiting sub-paragraph (2), in the case of a customer for a life assurance policy, an insurer must identify the beneficiaries of the life assurance policy; and immediately prior to the making of any payment or loan to a beneficiary of the life assurance policy, verify the identity of each such beneficiary using relevant information obtained from a reliable, independent source; and subject to paragraph 24(7), determine whether the customer is acting on behalf of another person and, if so, identify that other person, and take reasonable measures to verify that other person s identity using relevant information obtained from a reliable, independent source. (5) Subject to paragraph 24(7) and without limiting sub-paragraphs (2) and (3), the relevant person must not, in the case of a customer that is a legal person or legal arrangement, make any payment or loan to a beneficial owner of that person or beneficiary of that arrangement unless it has identified the recipient of the payment or loan; and on the basis of materiality and risk of ML/FT, verified the identity of the recipient using relevant information or data obtained from a reliable, independent source. 14 Politically exposed persons (1) A relevant person must maintain appropriate procedures and controls for the purpose of determining whether any of the following is a PEP any customer; any natural person having power to direct the activities of a customer; any beneficial owner or known beneficiaries. 22
(2) A relevant person must maintain appropriate procedures and controls for requiring the approval of its senior management before any business relationship is established with; before any occasional transaction is carried out with; or before a business relationship is continued with, a domestic PEP who has been identified as posing a higher risk of ML/FT, or any foreign PEP. (3) A relevant person must take reasonable measures to establish the source of wealth of a domestic PEP who has been identified as posing a higher risk of ML/FT, or any foreign PEP. (4) A relevant person must perform ongoing and effective enhanced monitoring of any business relationship with a domestic PEP who has been identified as posing a higher risk of ML/FT, or any foreign PEP. (5) For the avoidance of doubt, this paragraph does not remove the requirement to conduct enhanced customer due diligence where a PEP has been identified as posing a higher risk of ML/FT. 15 Enhanced customer due diligence (1) A relevant person must obtain enhanced customer due diligence where a customer poses a higher risk of ML/FT as assessed by the customer risk assessment carried out in accordance with paragraph 7; or in the event of any unusual activity. (2) A relevant person must consider whether to obtain enhanced customer due diligence in the event of any suspicious activity. (3) For the avoidance of doubt, if higher risk of ML/FT within the meaning of sub-paragraph (1) is assessed then paragraphs 10(4), 20, 22, 23(5), 24(2), (5) and (7) to (9) do not apply. (4) Matters that pose a higher risk of ML/FT include but are not restricted to a business relationship or occasional transaction with a customer resident or located in a jurisdiction in List A; and a customer that is the subject of a warning in relation to AML/CFT matters issued by a competent authority or equivalent authority in another jurisdiction. 23
(5) Matters that may pose a higher risk include but are not restricted to activity in a jurisdiction the relevant person deems to be higher risk of ML/FT; a business relationship or occasional transaction with a customer resident or located in a jurisdiction in List B; activity in a jurisdiction in List A or B; (e) (f) (g) (h) (i) a situation that by its nature presents a significant risk of ML/FT; a business relationship or occasional transaction with a PEP; a company that has nominee shareholders or shares in bearer form; the provision of high risk products; the provision of services to high-net-worth individuals; a legal arrangement; and (j) persons performing prominent functions for international organisations. (6) Except as provided in Part 6, when enhanced due diligence is not obtained or produced either where it is required under sub-paragraph (1) or considered appropriate under sub-paragraph (2) the business relationship or occasional transaction must proceed no further; and the relevant person must consider terminating that relationship and consider making an internal disclosure in accordance with paragraphs 26 and 27. PART 5 SPECIFIED NON-PROFIT ORGANISATIONS 16 Application This Part only applies to specified non-profit organisations. 17 New business relationships of specified non-profit organisations (1) A specified non-profit organisation must, in relation to each new business relationship, establish, maintain and operate the procedures specified in sub-paragraph (3), which procedures must comply with the other requirements of this paragraph. 24
(2) The procedures must be undertaken before a business relationship is entered into; or during the formation of that relationship. (3) The procedures referred to in sub-paragraph (1) are the identification of the customer; the taking of reasonable measures to verify the identity of the customer using reliable, independent sources; and the obtaining of information on the nature and intended purpose of the business relationship. (4) A specified non-profit organisation must, in the case of any correspondent non-profit organisation receiving funds on behalf of a customer, identify that correspondent non-profit organisation, and take reasonable measures to verify that correspondent non-profit organisation s identity using relevant information obtained from reliable, independent sources. (5) Except as provided in Part 6, procedures comply with this paragraph if they require, when satisfactory evidence of identity in accordance with subparagraph (1) is not obtained or produced the business relationship to proceed no further; and the specified non-profit organisation to terminate the business relationship and consider making an internal disclosure in accordance with paragraphs 26 and 27. (6) Correspondent non-profit organisation for the purposes of subparagraph (4) means a non-profit organisation that acts as an intermediary between a specified non-profit organisation and its customers. 18 Continuing business relationships of specified non-profit organisations (1) A specified non-profit organisation must, in relation to each continuing business relationship, establish, maintain and operate the procedures specified in sub-paragraph (3), which procedures must comply with the requirements of this paragraph. (2) The procedures must be undertaken during a business relationship as soon as reasonably practicable. (3) The procedures referred to in sub-paragraph (1) are 25
an examination of the background and purpose of the business relationship; if no evidence of identity was obtained after the business relationship was established, the taking of such measures as will require the production of such information in accordance with paragraph 17(1); if evidence of identity was obtained under paragraph 17(1), the taking of such measures as will determine whether the evidence of identity obtained under that paragraph is satisfactory; and if evidence of identity obtained under paragraph 17(1) is not for any reason satisfactory, the taking of such measures as will require the identification of the beneficiaries or the taking of such measures as will produce evidence of identity in accordance with paragraph 17(1). (4) A specified non-profit organisation must keep written records of any examination, steps, measures or determination made or taken under sub-paragraph (1) (which records shall be records to which paragraph 32 applies); and must, on request, make such findings available to the competent authorities and auditors (if any). (5) Except as provided in Part 6, procedures comply with this paragraph if they require, when evidence of identity in accordance with paragraph 17(1) is not obtained or produced the business relationship to proceed no further; and the specified non-profit organisation to consider terminating that business relationship and consider making an internal disclosure in accordance with paragraphs 26 and 27. 19 Occasional transactions of specified non-profit organisations (1) A specified non-profit organisation must, in relation to an occasional transaction, establish, maintain and operate the procedures specified in sub-paragraph (3), which procedures must comply with the requirements of this paragraph. (2) The procedures specified in sub-paragraph (1) must be undertaken before the occasional transaction is accepted. (3) The procedures specified in sub-paragraph (1) are 26
the identification of the donor of the funds for the transaction; and the verification of the identity of the donor using reliable, independent sources. (4) Except as provided in Part 6, procedures comply with this paragraph if they require, when satisfactory evidence of identity in accordance with subparagraph (1) is not obtained or produced the occasional transaction not to be carried out; and the specified non-profit organisation to consider making an internal disclosure in accordance with paragraphs 26 and 27. (5) Sub paragraph (1) does not require evidence of identity in accordance with paragraph 19(3) to be obtained if the transaction is an exempted occasional transaction. PART 6 SIMPLIFIED CUSTOMER DUE DILIGENCE 20. Acceptable applicants (1) Verification of the identity of a customer for a new business relationship in accordance with paragraph 10(1); or an occasional transaction in accordance with paragraph 12(1) or 19(1), is not required to be produced if the conditions in sub-paragraph (2) are met. (2) The conditions referred to in sub-paragraph (1) are that the identity of the customer is known to the relevant person; the relevant person knows the nature and intended purpose of the business relationship or occasional transaction; the relevant person has not identified any suspicious activity; and the relevant person has satisfied itself that (i) the customer is a trusted person; or 27
(ii) (iii) the customer is a company listed on a recognised stock exchange or a wholly owned subsidiary of such a company in relation to which the relevant person has taken reasonable measures to establish that there is effective control of the company by an individual, group of individuals or another legal person or legal arrangement (which persons are treated as beneficial owners for the purposes of this Code); and the customer does not pose a higher risk of ML/FT. 21 Persons in a regulated sector acting on behalf of a third party (1) This paragraph only applies to a regulated person holding a financial services licence issued under section 7 of the Financial Services Act 2008 to carry on regulated activities under Class 1 (deposit taking), Class 2 (investment business), Class 3 (services to collective investment schemes) or Class 8 (money transmission services) of the Regulated Activities Order 2011 20. (2) Where the regulated person determines that a customer is acting on behalf of another person who is an underlying client of the customer, the regulated person need not comply with paragraph 13(2) if the following conditions are met (e) (f) the regulated person has satisfied itself that the customer is a person specified in sub-paragraph (6); the customer has identified and verified the identity of the underlying client in accordance with paragraphs 10 to 13 and has no reason to doubt those identities; the regulated person and the customer know the nature and intended purpose of the business relationship; the customer has identified the source of funds of the underlying client; the regulated person has not identified any suspicious activity; and written terms of business are in place between the regulated person and the customer in accordance with sub-paragraph (3). (3) The written terms of business required to be in place in accordance with sub-paragraph (2)(f) must in all cases require the customer to 20 SD 0884/11 as amended by SD 0373/13 28
supply to the regulated person immediately on request, information on the identity of the underlying client, copies of the evidence verifying the identity of the underlying client and all other due diligence information held by the customer in respect of the underlying client in any particular case; inform the regulated person specifically of each case where the customer is not required or has been unable to verify the identity of the underlying client; inform the regulated person if the customer is no longer able to comply with the provisions of the written terms of business because of a change of the law applicable to the customer; and do all such things as may be required by the regulated person to enable the regulated person to comply with its obligations under subparagraph (2). (4) In satisfying the conditions under sub-paragraph (2), the regulated person must take reasonable measures to ensure that the evidence produced or to be produced is satisfactory; and the customer due diligence procedures of the customer are fit for purpose. (5) The regulated person must take reasonable measures to satisfy itself that the procedures for implementing this paragraph are effective by testing them on a random and periodic basis no less than once every 12 months; and the written terms of business confer the necessary rights on the regulated person. (6) The persons referred to in sub-paragraph (2) are a regulated person; a nominee company of a regulated person where the regulated person is responsible for the nominee company s compliance with the AML/CFT requirements; 29